Why Morrison’s London housing affordability junket was a farce

Back in January, Australia’s real estate treasurer, Scott Morrison, traveled to London to gain ideas on how to address housing affordability.

At the time, I questioned why Morrison had sought solutions on housing affordability from politicians located in one of the world’s most expensive housing markets – London – and from a country (the UK) which has a long and sordid history of housing policy failures.

Now, a new report by the Office for National Statistics (ONS) has revealed that housing affordability has worsened in all of the England and Wales local authority districts over the last 20 years, as the median price paid for residential property soared by 259% versus only a 68% increase in median individual annual earnings:

Accordingly, working people in 2016 could expect to pay around 7.6 times their annual earnings on purchasing a home in England and Wales, which is more than double the rate in 1997 – where it stood at 3.6 times average earnings:

Further, in the past two years, the gap between average wages and house prices has spiked. Between 2015 and 2016, 93% of councils experienced a rise in house prices – yet in the same year there were no significant changes in earnings in any local authority in England and Wales.

Meanwhile, housing affordability had worsened fastest in London boroughs over the past two decades, with seven out of the 10 least affordable councils in 2016 being in the capital, an increase from five out of the 10 least affordable local authorities in 1999. Nine out of the 10 local authorities with the largest increase in affordability ratio between 1999 and 2016 are in London, where house prices were 38.5 times the median gross average earnings in the area:

This data follows the latest Demographia housing affordability survey, released in January, which revealed that London’s Median Multiple (median house price divided by gross annual median household income) is 8.5, which makes it the 12th most expensive housing market out of the 406 urban markets assessed across nine countries.

The UBS Global Real Estate Bubble Index also recently rated London as having the world’s second worst housing bubble risk. Further, London has experienced substantial domestic out-migration, as its high house prices appear to be repelling population growth.

Instead of traveling to London, Scott Morrison should have sought solutions from policy makers in markets where housing has remained affordable in spite of rapid population growth, such as Houston (Median Multiple 3.5) or Dallas (Median Multiple 3.7). The fact that Morrison instead chose expensive London suggests that he has zero genuine interest in addressing housing affordability and was instead seeking to create the impression that the Coalition cares about housing affordability, rather than seeking genuine policy solutions.

Comments

He might be better off looking at cities that had housing bubbles but have managed to control them (at least a little bit). The common factor in housing bubbles at present is the wave of global money (mostly Chinese), this hasn’t been a factor in Houston or Dallas. Singapore faced it and put up a raft of heavy stamp duties (>15% on foreign buyers and sellers) squarely aimed at foreign buyers and the local investors who were front running them. It has been partly successful with prices pulling back 10-15% with no damage to the economy which is booming.

London is an interesting case study in its own way though, bc UK did put up a high stamp duty but only on properties above a certain value. So while that included most properties in central London, the outer buroughs fell below the tax threshold. So guess what happened? Central London values have pulled back but now the outer buroughs are rising at >20% pa.

@Patrician…wouldn’t that be the inclusion of 900,000 Gambians, Somalis, Nigers, Nigerians, Morrocans, Tunisians, Afghans, Iraqis, Sudanese and the 72,000 other “refugees” adding to the overall population? Hardly a demand driver for buying housing.

Ummm… London is booming, global city (not unlike Sydney), banking, finance, arts, culture. etc. etc. – Houston and Dallas have had multiple housing crashes over the above 20 year period, not least, the recent shale crash in the past year or so! They are oil economies, not unlike Perth… but they do have Gas Monkey Garage and Misfit Garage – a bit Red Neck you say, but I love it…

Morrison was well within his rights to examine all options. What you may not realise is the Bough Councils of London subsidise massive housing projects in London (hence the massive council tax regimes), on a socialist scale impossible here!

There is a lot about this subject that clearly is missing from this dissuasion. Personally, I like the idea of people having a look around seeing whats available globally (rather than discovering mistakes ourselves). Most of the commentors have never visited or lived anywhere else. Despite what people believe, we are not that exceptional here in Oz. We could be doing a lot of things a lot better.

Housing density and needless urban expansion and dereliction of infrastructure the most obvious ones… only obvious, because I have lived in numerous places.

Slightly off topic. Living in London not more than 20-30 minutes from the centre I have applied a little public transport test. In recession you have loads of space on the overground trains. Since 2011 the sardine squeeze has got tighter. No sign of relief yet.
Although Reusa might enjoy that and get some.

“Don’t blame me for the bleeding obvious – I was merely being constructive.”

Really? By calling “multiple housing crashes over the above 20 year period”, when in fact prices and affordability have been stable, despite massive population growth. You call that constructive? I call that ‘fake news’.

Austin is an interesting one in Texas. Not an oil town but becoming a bit of a high tech hub.

Global (Chinese) hot money is more important than population growth. Believe it or not Vancouver’s population is flat over 20 years. And yet…

Its not just the number of Chinese buyers that makes them so disruptive to housing markets. At the top end they are not price sensitive at all, the reverse in fact – they want to shift as much money as possible out of the country. So they drop truckloads of cash in prestige suburbs which gradually floods suburbs for miles around.

It has occurred to me that the trip to London was about exploring which options there still are to keep prices where they are now and where possible retain the upward momentum. All this and figure out how to sell another immigration bait and switch.

“ … Remarkably, 354,700 new homes were built in France last year, compared with 140,880 across the UK, a pathetically inadequate number barely half of that required. The French were actually bitterly disappointed with their own performance: their recent average has been around 400,000 homes a year. …”

Leiths article above has been popped on the (Tory) Kiwiblog thread to cheer them up …

Prime Minister Bill English is failing to match the popularity of his predecessor John Key, according to a new poll.

The latest Newshub-Reid Research poll has placed English on 25 per cent in the preferred prime minister rankings.

The result puts him 11 percentage points behind Key’s 36.7 per cent result in August last year – which was his worst result in the Newshub poll.

English’s result appears to be the lowest figure for a sitting Prime Minister in at least 10 years, dating back to Helen Clark’s final term in charge. … read more via hyperlink above …

John Key bailed because he had no intention of facing the music in 2017 … so Bill English got the hospityal pass. Late Januay I explained this within ‘New Zealand’s housing consensus: Where is the political leadersghip?” …

“markets where housing has remained affordable in spite of rapid population growth”
Just wondering if you could expand on this a little in a future post? Seems to go against the prevailing wisdom – so how does it work?
Cheers.